US apartment rents show 1st decline in over 5 yrs

Source : Business Times - 7 Jan 2009

Average rents for US apartments fell in the fourth quarter, as a sharp economic downturn and rising unemployment left Americans unwilling to pay higher prices, according to data released on Wednesday.

Rents fell 0.4 per cent in the final quarter of 2008, the first decline since early 2003, the study by real estate research firm Reis Inc found.

The vacancy rate rose to 6.6 per cent, a level last seen in the first quarter of 2005, and up from 5.7 per cent a year earlier.

While few Americans typically move in the fourth quarter, as they face the onset of the northern hemisphere winter and several national holidays, the decline in rents shows that landlords are moving quickly to try to keep vacancies down, said Victor Calanog, director of research at Reis.

‘The quantity of rental apartments might not be suffering as much, but the price paid by households to occupy those rental units is buckling under the strain, with landlords lowering asking rents and raising the amount of concessions they are willing to provide,’ Mr Calanog said.

The current global economic downturn can be traced back to the decline in US home prices that began in the middle of the decade. That led to a collapse in the sub-prime lending market, which last year snowballed into a global credit crunch.

The slump is not confined to residential properties. Reis data released on Tuesday showed that office rents across the United States fell 1.2 per cent in the fourth quarter, as a slumping economy drove vacancy rates higher.

Shares of major US owners of apartment complexes including Apartment Investment and Management Co, Equity Residential and AvalonBay Communities Inc have been pummelled in recent months.

Vacancies at regional malls rise as economy reels

Vacancies at regional malls in the United States rose in the fourth quarter to their highest levels of the decade, according to Reis.

Vacancies at those malls rose to 7.1 per cent from 6.6 per cent in the fourth quarter, the highest level since Reis began tracking regional malls in 2000.

That rise in vacancies was accompanied by a fall of 0.3 per cent in the asking rent.

‘The beleaguered retail sector is suffering given the steep decline in two important and related drivers of performance,’ Mr Calanog said in a statement, in reference to negative job growth and the plunge in retail spending.

Reis projects that vacancies will continue to rise at regional malls through 2010, barring a dramatic improvement in the economy.

Vacancies also jumped at neighbourhood and community centres, rising half a percentage point to 8.9 per cent in the fourth quarter, the single largest jump on record.

There was also negative net absorption of 4.1 million square feet at these centres in the fourth quarter, according to Reis.

Mr Calanog said vacancies will keep rising unless consumer confidence recovers, the housing market stabilizes and the credit markets ease.

‘And even when they stabilize, we often observe anywhere from a 12 to 24 month lag until commercial retail properties begin benefiting from a resumption in consumer and retail spending,’ he said.

The slump is not confined to regional malls and neighbourhood and community centres. Reis data on Tuesday showed office rents across the United States fell 1.2 per cent in the fourth quarter.